Brad Heath was tired of never getting invited by his large customers to the big dance. So two years ago, the CEO of VirTex Assembly Services Inc., a small electronics manufacturing services provider, decided to put his company through a makeover that went way beyond skin deep.
Throughout its 10-year history, VirTex often succeeded in getting contracts from large OEMs to build products such as notebook computers and networking equipment, but once those products went into widespread distribution and large-scale production, the OEMs all too often would instinctively turn to VirTex’s large offshore competitors, which could offer lower unit prices, thanks to lower labor costs.
Then, two years ago, after landing a deal to produce ruggedized laptops to be private-labeled by a Fortune 50 company, Heath decided to do everything he could to hold onto the contract, even as it moved into high volume.
Heath knew that VirTex would need to significantly reduce its costs and, at the same time, deliver to its customer the type of flexibility and short turnaround times that competitors thousands of miles away would not be able to match, much less beat.
VirTex started by taking a new approach to supplier selection for the new laptops. Rather than picking suppliers with the lowest quoted price as it might have done in the past, the company emphasized the total cost of acquisition and lead times, taking into account factors such as shipping costs and cost of capital.
Critical to VirTex’s makeover was a new, more collaborative stance with its customer. VirTex worked closely with its customer on supplier identification and selection, even opening its pricing books to the customer.
VirTex also formed project teams that met via nightly conference calls and included supply chain, purchasing, and operations managers from its own organization, its customer, and key suppliers. The groups worked to optimize local stocking, safety stock, transportation, and other issues, all intended to increase flexibility and slash lead times. In the end, VirTex cut lead times from an eight- to 12-week range to four to six weeks, while building in the ability to quickly increase capacity by more than 50%.
“We learned how to become a lot more customer-centric,” Heath says. “We didn’t have a clue when we started how to deal with big Asian suppliers. We had to rely on our customer to teach us that piece. Unless you understand what your customer’s needs are, you can’t craft the right solution.”
To reinforce that close customer collaboration, VirTex developed a Web- and bar-code-based tracking system that lets customers see the status of products and subassemblies up to the minute. The system, dubbed Archer, which was integrated with VirTex’s functional test component warranty management system, also allows customers to electronically transmit all deviation reports and engineering changes.
VirTex not only held onto the laptop contract, but the customer also has selected the company to build and operate a new plant in Juarez, Mexico, where Heath expects to fulfill additional contracts with the customer.